How Do I Trade Commodities?

 

Have you ever read headlines on falling crude oil prices and wished you can get a piece of the action?

How Do I Trade Commodities?

 

Have you ever read headlines on falling crude oil prices and wished you can get a piece of the action?

 

Well, there’s a way to make profits off these market moves by trading commodities spanning from precious metals to agricultural products like coffee and soybeans. There’s no need to worry about having tons of cocoa or gallons of crude oil being delivered to your doorstep when trading commodities because the goods aren’t actually being exchanged. Instead, trading commodities through futures contracts simply involves cash settlement once the trade is closed. In other words, your broker will calculate the difference in the commodity price when you opened and closed the trade then add or deduct this value to your account.

 

Factors that drive the price action

Before starting to trade these products, it’s important to understand the factors that drive their price fluctuations. Generally, commodity prices are influenced by the generic supply and demand forces. Rising supply levels, while demand remains weak, leads to a market surplus, which can then drive prices lower. On the other hand, stronger demand on limited supply tends to drive prices higher.

Weather conditions and seasonality are also essential market factors to take into consideration. After all, weather changes impact harvest conditions and may influence the quality and quantity of products during a particular period of time.

 

Risk reaction also affects commodity trends, particularly when it comes to precious metals such as gold and silver because these are usually treated as hedges against inflation.

 

Aside from trading commodities in order to profit from price changes, companies and investors also use these futures to hedge against foreseen price changes in the future. In doing so, they can lock in prices for certain commodities now to shield themselves from potential losses in case the industry undergoes a downturn later on. These dynamics also come into play when trading commodities with speculation, so it’s important to keep tabs on market headlines to be able to identify factors that could influence prices in the future.

 

Contract sizes, margin requirements, and minimum trade sizes. Once these market drivers are understood, it is also important to understand contract size, margin requirements & minimum trade sizes. Some commodities require a minimum contract order of 50 barrels, or 10 metric tons to trade, which corresponds with equivalent margin requirements which are important considerations when deciding how much to deposit in your trading account.

Unlike equities, commodities do not offer dividends, or earnings and can be more volatile compared to certain stocks; commodity trading is generally recommended for those who can hold long-term positions in markets, in order to capitalize on trends. Please note that with all CFD’s and most other investment types, there are risks at high levels involved. When traders use margin to trade, they are leveraging the opportunity to make money, but also to leverage the risks, as well. Trade wisely.

 

On the Forex Tigon LTD platform, commodities are priced in US dollars, making it easy to compare and calculate potential profits or losses.

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